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Equity - 'Marshalling'. Greenspan v. Van Clieaf
In Greenspan v. Van Clieaf (Ont CA, 2023) the Court of Appeal considered the equitable doctrine of 'marshalling' ["the marshalling doctrine applies to regulate the rights of creditors among themselves"]:[57] Fourth, the application judge made an error of law in considering that the appellants had other means of enforcing their rights under the promissory note. If JKSD can establish that it has an equitable fourth mortgage on the property, the fact that it may be able to also sue Jaymor, Fabco, Mr. Lucchese and the other parties who signed the promissory note is irrelevant. An equitable mortgage gives JKSD direct access to recovery from the proceeds of sale from the property, whereas the ability to sue Jaymor, Fabco and Mr. Lucchese would create added expense and uncertainty over the ability to recover. The purpose of bargaining for a mortgage is to avoid this uncertainty.
[58] As pointed out by the appellants, the application judge effectively misapplied the equitable doctrine of marshalling. As held by this court in Green v. Bank of Montreal, 1999 CanLII 821 (Ont. C.A.), the marshalling doctrine applies to regulate the rights of creditors among themselves. However, as the court held at para. 10,[I]n so regulating their rights the court will never interfere with the paramount claim of the superior creditor (the one which has the choice of the two funds of the debtor from which to collect) to pursue his or her remedy against either fund, but provides that if he or she resorts to the fund which the inferior creditor can alone resort, then the inferior creditor shall not be prejudiced. [59] In this case, if JKSD can establish that it has an equitable mortgage, it is the superior creditor vis-à-vis the respondents. The application judge erred in relying on the fact that JKSD could pursue a civil action as a basis for denying its claim to an equitable mortgage. This was a misapplication of the marshalling doctrine which required the application judge to first determine whether JKSD had a right to an equitable mortgage based on the agreement between the parties at the time it was made and then to determine whether there was another source of funds from which JKSD could recover that would cause it no prejudice. Had she followed this reasoning, it would have been evident that the opportunity to sue Jaymor, Fabco and Mr. Lucchese would place JKSD in an inferior position as compared with the ability to recover directly from the proceeds of sale of the property.
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